Remote working during the pandemic has accelerated innovation at law firms but made supervision more difficult, a survey has found.
It painted a now familiar picture of unexpectedly good financial performance, with 81% of firms saying they exceeded their expectations, while concerns for the future were dominated by recruitment and retention.
Innovation was viewed by 54% of firms as the most positive impact of remote working, followed by productivity (49%), motivation (43%) and wellbeing (38%).
The negative impact cited by most firms was on supervision (59%), followed by training and development (54%) alongside business development and winning new work (54%), and wellbeing (38%).
The Law Firm Benchmarking Survey 2021 was based on responses gathered this summer by accountants Crowe from 50 City and regional law firms.
City firms had the highest growth rate in annual revenue, with 7.2% compared to 3.8% for regional firms.
For regional practices, researchers found far greater pressure on fee income, coupled with fewer firms taking an increasingly larger share of the work.”
In terms of profitability, two-thirds of regional firms (65%) and 55% of City firms said their results greatly exceeded their expectations; a further 12% and 30% respectively said they had ‘slightly’ exceeded expectations.
Average profit per partner grew fastest at regional firms, up by 38% to £284,487, compared to a 17% increase to £485,861 for City firms.
However, when it came to headcount, regional firms cut jobs by 1.2%, while those in the City increased numbers by 2.3%.
Researchers said the “downsizing of teams in regional firms” was split equally across fee-earning and support teams, with an average reduction in headcount of 1.5% across both.
Turning to risks for the future, all of the firms surveyed mentioned both ‘availability of people and the skills we need’ and ‘retention of our key people’.
Health and wellbeing of staff came third on the list, ahead of cybercrime and fraud resilience, which shared fourth place with data integrity and protection.
When law firms were asked what they thought the main drivers were to attract and retain talent, two-thirds of regional firms believed it was salary, followed by holiday entitlement (47%).
The picture was reversed at City firms, with most mentioning holidays (45%) followed by salary (40%).
In terms of external risk factors, price competition was the top concern, with 80% expecting price competition to increase significantly and almost three-quarters (73%) saying that a law firm’s brand will be a significant factor in winning new clients amidst this price squeeze.
Despite these risks, law firms remain bullish about 2022, with 90% of City firms saying the outlook for their firm is positive or very positive, dropping a little to 82% among regional firms; both groups were optimistic about the outlook for the wider legal market too, if not as much as they were for their own practices.
Louis Baker, head of professional practices at Crowe, commented: “The legal sector has shown resilience against the operational headwinds of the pandemic and the resultant economic uncertainty over the past year, and most firms have outperformed their previous projections.
“That said, operational dynamics have shifted. Many leadership figures tell us they are benefitting from honing their operations during the pandemic and are confident that they now operate leaner, more competitive practices.
“Hybrid working practices have started to become embedded and digital transformation has been adopted at a faster pace than previously thought possible within their firms.”